For those of you looking for a detached house, you may be familiar with the terms mortgage helper, in-law suite, or basement suite.
These are a separate suite in your home that you can rent out for extra income in order to subsidize your mortgage. It’s a great way to secure extra space for your family before you actually need it! It can give you options in the future with regards to aging parents and expanding your living space, when your kids start to grow up.
There are some interesting details to know about mortgage helpers in Vancouver, so take a look below for some more information:
How Do Mortgage Helpers Affect My Mortgage?
Back in 2015, the CMHC announced that they were changing the rules with regards to a mortgage helper. Previously, only 50% of the rental income from legal secondary suites could be used when qualifying for a mortgage, but now 100% of rental income can be used towards your qualifications for a mortgage. This means buyers can look to buying a property worth more than they can afford because the extra rental income will be taken into account when it comes to financing requirements. This why buyers can make the jump to a detached house sooner than they would otherwise, and rent out the space in the basement until they need the extra room.
In order to qualify to use 100% of rental income towards your financing, you need to satisfy the following criteria:
- Part of the property must be owner-occupied
- The property being insured can have only two units (i.e., a duplex or a single home with a legal secondary suite).
- Rental income cannot be used if the suite is “illegal/non-conforming” but “legal non-conforming” is okay.
- The suite must be self-contained with its own entrance.
- Property taxes and heat must be factored into the borrower’s debt ratios
- A satisfactory property appraisal analysis is needed to prove the expected market rental amount
- Mortgage applicants must have good credit
In order to determine what the rental amount is that can be applied to financing, the lenders will bring in a third party property appraiser to determine the rental value.
Legal vs Illegal Vs Non-Conforming Suites
There are a few different ways to describe a mortgage helper or basement suite, and they all have different ramifications.
A legal suite is one that complies with City of Vancouver zoning requirements for basement suites (more information here) including ceiling heights, fire protection, exits, etc. You won’t run into any issues with financing or the City if you have a legal suite.
A non-conforming suite is one that previously complied with City of Vancouver requirements, but does not any longer due to changes to zoning and codes, though has been “grandfathered” as a proper suite. The space can continue to run as a basement suite, though you wouldn’t be able to build the suite like that in this day and age and the City may require that you update the space to meet current code if you ever wanted to do big renovations.
An illegal suite is one that has never received approval from the City of Vancouver, and does not comply with current zoning and code requirements. If this is discovered by the City, they can make you renovate the suite until it does comply with current zoning codes. If your ceiling height is too low, it would be a BIG project to reach compliance. You can stop renting the suite at this time and use the space for your own personal use, but you would also be losing the monthly income, which can truly hurt your finances!
The Biggest Point to Know About Owning a Mortgage Helper?
You’re now a landlord! You’ll have to be available to fix issues, have landlord insurance, deal with a slight loss of privacy (with regards to noise, parking, outdoor space, etc), claim the income, and follow the Tenancy Act when it comes to managing the tenant and the space. It can be a big undertaking, especially if the tenants prove to be a little more difficult than normal.
Contact us if you’re interested in chatting about Mortgage Helpers, in-law suites and basement suites!
